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The panel was set up earlier this year with senior officials from almost all German ministries.

It came in response to demands by Merkel's Bavarian sister party, the CSU, that a tougher stance be taken on ‘welfare tourism’.

A draft seen by Reuters and Spiegel recommends limiting job-seekers' stay to three months if they don't find work, expelling those who commit benefit fraud and blocking their return for a certain period of time, "as long as it is in line with EU law."

Child allowances should also be given only to EU citizens who are registered taxpayers in Germany, the draft reads.

Municipalities with high numbers of people needing social welfare are to be granted extra help to the tune of €200 million.

Meanwhile, police and employment offices should crack down on firms who use unregistered workers, the report recommends.

Late last year the mayors of 16 cities made a public plea for help in coping with migrants from Eastern Europe, notably Roma from Romania and Bulgaria, who are accused of putting a strain on local welfare schemes.

Interior minister Thomas de Maiziere said the focus should be on those who exploit unskilled migrants.

"We have to look at the people and structures who bring migrants and exploit them for their own petty interests," he told the Rheinischer Post.

He said it cannot be that people who speak no word of German show up to the local benefits offices with perfectly filled-in forms and demand child support or a permit to set up a business.

The Green and leftist opposition has criticised the report as illegal and targeting the wrong people.

"In a free and democratic Europe, people cannot be imposed limits on how long they can seek for a job or stay in another EU country. Bans on re-entry in a country are also illegal," said Volker Beck, the home affairs expert of the German Greens.

Sahra Wagenknecht from Die Linke, the largest opposition party in Germany, said "poverty does not decrease by fighting the poor."

The Bavarian CSU has come under criticism for its populist campaign against "social tourism". Critics note that the numbers of Romanian and Bulgarian citizens who asked for German child support are low: 3,393 Romanians and 957 Bulgarians, out of a total of 14.4 million people who benefit from child support.

A hearing in the European Court of Justice (ECJ) on Tuesday will shed more light on whether denying child support to Romanians is in line with EU law.

The plaintiff, a young Romanian mother, was denied unemployment benefits by the local authorities in Leipzig because she failed to get a job.

She has neither a higher education nor professional training and has lived with her son in Germany since 2010.

A court in Leipzig found the decision in line with German law, but asked the ECJ to examine whether the ruling was also in line with EU law.

Opinion

The EU should either conduct, or ask states to conduct, human rights impact assessments of country-specific recommendations to ensure that the implementation of austerity measures does not result in reduced human rights protections.